Moving On from Foreclosure or Shortsale

I had the pleasure of attending a continuing education class this past week where the subject was qualifying to buy a house after foreclosure or shortsale. The class was put on by WFG National Title and the guest speaker was Mitch Carpenter, a home mortgage consultant with Wells Fargo. Also in attendance was one of Wells Fargo’s loan underwriters.

Foreclosures and shortsales have been a huge part of our real estate market for several years now. These people who have lost their homes in distressed circumstances are going to get past the hard times, hopefully. In the future they may want to become home owners again. Just how will the foreclosure or shortsale affect their ability to buy a house in the future?

First, a disclaimer. What I am sharing here are some simple guidelines that I got out of a class. Be aware that each circumstance is unique and different underwriters and different lenders may, well, see things differently. This is intended to be general information. If you are in this circumstance, please consult your own lender.

Also, if you are facing foreclosure or shortsale, please seek legal council. What I am sharing here should not be used by you as advice. There are consequences to foreclosure and shortsale that I am not going to go into in this narrative. You need better advice and good legal council that I am simply not providing here.

Extenuating Circumstances vs Financial Mismanagement

When someone who has been through foreclosure or shortsale goes to apply for a new mortgage, the underwriter is going to want to determine if the foreclosure or shortsale was a result of extenuating circumstances or financial mismanagement. Extenuating circumstances are conditions that were out of their control. This may have been failure of a company, illness, or other financial difficulties that were beyond the control of the borrower. It will have been a one-time event that is unlikely to occur again. Financial mismanagement is a pattern of poor choices. Does the borrowers credit history show slow and late payments before the foreclosure or shortsale and also afterwards? This pattern means that the potential for future problems may exist. These two types of distress will determine what a buyer needs to do before they can become a homeowner again.


If the foreclosure happened under extenuating circumstances:
* Borrow must provide a written narrative explaining the circumstances as well as written documentation and why it will not occur again.
* A minimum 620 credit score
* Purchase needs to be a primary residence and the borrower needs at least 10% down payment
* A credit report that shows borrower has reestablished an acceptable credit history.
* 3 years have passed since the foreclosure

If the foreclosure happened because of financial mismanagement:
* Minimum credit score of 680
* Purchase needs to be a primary residence and the borrower needs 10% down, minimum
* 7 years have passed since the foreclosure


Under extenuating circumstances:
* It has been 2 years since the completion date of the shortsale
* Property can be primary residence, second home, or investment
* No minimum credit score, but good credit will certainly be a factor

Due to financial mismanagement:
* It has been at least 4 years since the completion date of the shortsale
* Property can be primary residence, 2nd home, or investment
* Minimum 680 credit score

New FHA or VA Loans

Both FHA and VA are more lenient than conventional.

FHA will consider a borrow who has been through a foreclosure after 3 years and no further documentation is needed. If the borrower can show it was under extenuating circumstances and good credit has been re-established, they will consider approving a new loan before 3 years.

VA will consider a borrower who has been through a foreclosure after 2 years. If the foreclosure was under extenuating circumstances a new VA loan will be considered after just one year. In both cases the borrower must have re-established good credit.

Of note:
If the foreclosure or shortsale properties were either a VA or an FHA loan, a new VA or FHA loan will NEVER be approved until the the debt is paid in full.

It feels good to be thinking about moving beyond the down turn in the real estate market. There are a lot of people out there who have lost their homes. It has been terrible. Is there a light at the end of the tunnel? I hope so. And for those who moved out into the light, you can rebuild your credit, you can become a home owner again. I recommend connecting up with a good mortgage loan officer and start working with them now for that purchase in the future. A good loan officer will spend time to help you years in advance of your eventual purchase.

Call if you have questions. As always, Linda and I are here to help.

Distressed Homes and Home Owners

West Waluga Park
I know I wrote a post just recently about foreclosures and short sales, but a ton of new information has come to my attention. This information is really useful, so I decided to stay with the topic for this week.

Running the Numbers
I spent a little time looking more closely at just how foreclosures and short sales are impacting the market here in Lake Oswego. I easily figured out that the two types of distressed housing make up about 20% of the current listings. But what I got to thinking about was a more specific breakdown of the two, and finding out which are actually selling. Here is what I found:
* There are currently 548 properties for sale (these are including all residential: condos, town houses, and detached)
* There are currently 80 sales pending (offer accepted and in escrow)
* In the last 6 months 324 properties have sold and closed. At this rate, it will take it will take a little more than 10 months to sell the current inventory.
* There are 33 Bank foreclosures for sale (6% of the inventory), 17 are currently in escrow (21% of the properties in escrow), and 56 have sold in the last 6 months (which represents 17% of the closed transactions).
* There are 73 short sales currently in the inventory (13% of our LO market), 14 are pending sales that have not closed, and truthfully may never close (17% of the properties in escrow), and just 19 that successfully closed in the last 6 months (just 5% of actual, closed transactions).

I think I had a sense of this: that there are lots of short sales out there but that not a lot of them actually become a sold property. It is clear in the numbers. Short sales represent 13% of the inventory but just 5% of the sales. Whereas foreclosures represent just 6% of the inventory, but are 17% of the sales.

East Waluga Park

If you or someone you know is a distressed homeowner, pay attention NOW.

There is Federal stimulus money that has not yet been used. So far it feels like it’s all gone to the banks and been of little or no help to actual home owners. This is about to change. Beginning December 10th and ending in mid January, you can apply for mortgage payment help. The program is called MPA (Mortgage Payment Assistance). In Oregon 5000 households will receive help. Here is how it works. Go to and apply. Applying for this help is going to be very similar to applying for a mortgage. You will have to submit bank statements, tax returns, etc. Households will be deemed qualified or not. All of the qualifying households will be entered into a lottery and names will be drawn. The 5000 house holds selected will have the Federal Government pay their mortgage payments for 12 months. The money will be considered a no-interest loan that is forgiven 20% per year for 5 years. So if you stay in your home for 5 years it will be 100% forgiven. There a lots more details, and I am not an expert. If you or someone you know needs this help, go to the website and get the information. Households can begin applying on December 10th.

I know the whole bailout is super controversial. But households in foreclosure is a tragedy that affects families, neighborhoods, and our entire economy.

Helpful Resources:
As part of my continuing education to renew my real estate license I took a 7-hour class yesterday on Short Sales and Foreclosures. While lots of good information was given out, I think I most appreciated getting come contact info for home owners who are financially distressed. Here are some good resources:
* You can find foreclosure avoidance counseling at
* There are numerous scams preying on distressed homeowners. If you are tempted to hire services from a company who claims to be in a position to help you, check them out first by going to , , or
* Check out the Federal Government’s Making Home Affordable Program at
* In Oregon check out

Putting Things in Perspective
Every month households receive notices of foreclosure. These numbers are for the month of October 2010:
Clackamas County 1 in 402 households received this notice
In Las Vegas, in the same month, it was 1 in 6 households.

I hope you find this useful. Don’t hesitate to give myself or Linda a call if you have any questions.